By Geoffrey Smith
Investing.com -- The U.S. economy created far fewer jobs in April than estimated, casting doubt over the strength of the economic recovery.
The Labor Department said only 266,000 net nonfarm payrolls were added through the middle of last month, compared to expectations for a number just under 1 million. In addition, the March payrolls gain was revised down by a whopping 146,000 to 770,000.
The unemployment rate rose to 6.1% of the workforce from 6.0% in March. Analysts had expected it to fall to 5.8%.
There was no indication as to why the government's data were so starkly at odds with other evidence in recent days and weeks suggesting a more vigorous recovery. Data collection for ADP's private-sector hiring survey generally has the same cut-off date as the government's, and ADP had reported a net increase of 742,000 private-sector jobs in the month, compared with the government's estimate of only 218,000.
According to the Bureau of Labor Statistics, manufacturing payrolls fell by 18,000 month-on-month, something that stands at odds with the ISM's monthly survey, whose employment index has been well above the 50 level that separates growth from contraction all year.
Some economists, at least, were skeptical of the figures' accuracy.
"Ignore the hot-takes and emails dissecting the data. Just put on your steepener and clock out for the weekend," said Robin Brooks, an economist with the Institute for International Finance in Washington, DC. "This negative NFP surprise is just noise and doesn't invalidate for a second that U.S. GDP is booming hugely."
A steepener is a trade that bets on shorter-dated bonds outperform longer-dated ones, reflecting expectations of higher inflation at a time of low official interest rates.
Market reaction to the news was abrupt, as cyclical stocks, oil and bond yields all headed lower.
However, Nasdaq futures gained on expectations that the Federal Reserve will resist any temptation to consider easing off on its asset purchases this year. Earlier this week, Dallas Fed President Robert Kaplan had become the first senior Fed official to suggest that the time to discuss tapering bond purchases had already arrived.
For the Fed, we suspect that means it will be a many months before it judges the economy has made “substantial further progress” towards its “broad based and inclusive” full employment goal," Michael Pearce, senior economist with Capital Economics, said in a note to clients. "That means any talk of tapering, let alone rate hikes, is still some way off."
By 8:50 AM ET (1250 GMT), Dow Jones futures, which have outperformed in recent weeks as ‘reopening trades’ have brought beaten-down cyclical names back into fashion, were down 0.1%.